- Rent prices are dropping across the country as supply begins to outpace rental demand.
- Data from listing search site Zillow shows that US asking rents fell 0.4% month-over-month in November.
As the housing downturn continues into the winter months, homebuyers aren't the only Americans benefiting from cheaper prices. Rents have begun falling in markets across the country and are likely to fall even further in 2023. And if this trend continues, it could even help ease inflation and ultimately lead to lower mortgage rates.
US asking rents fell just 0.4% month-over-month in November, according to a rental report released this week by Zillow. Although rent prices remain at higher levels than the pre-pandemic market — the current national average being $2,008 per month — the recent decline is significant in the sense that it marks the largest pullback in rents since Zillow started tracking rental data in 2015.
"Americans' demand for housing has waned this year, after booming in 2021, thanks to higher costs of rent and generally high inflation," Zillow's researchers wrote in the report. "More people are doubling up with roommates or family, pushing up the rental vacancy rate and thereby putting some pressure on landlords to keep rent hikes in check."
Indeed, fading demand has translated to cheaper rents in many markets. In a separate rental report from real estate brokerage Redfin, researchers found that rents are now growing at half the pace that they were during the summer, which was a period where demand outpaced rental supply. Data from the brokerage shows that in November, 14 of the 50 largest US metro areas it tracks posted annual price declines. Cities that saw the biggest year-over-year drops were Milwaukee, WI at 13.1%, Houston at 6.3%, Austin at 5.3% and Baltimore at 4.4%.
"Rent growth is likely to continue cooling," Chen Zhao, research lead with Redfin Economics, said in the December report, adding that Redfin expects "declines to become more common in the new year."
Another important component in the slowing rent growth is that it could lead to cheaper mortgage rates. That's because housing counts for roughly a third of the Consumer Price Index – a measure of the average change in prices paid over time by consumers for goods and services – making it the single most influential component of the inflation measure. In other words, a continued trend of lowering rents could help convince the Federal Reserve that inflation is easing and encourage them to cut back on interest rate hikes, thus reducing borrowing costs for prospective homebuyers.
"Asking rents are already down annually in 14 of the metros Redfin tracks," Chao said, adding that this should "ultimately help slow inflation further" and "lead to lower mortgage rates, which should also bring more homebuyers back to the market."
Slowing inflation has already translated to lower mortgage rates, which peaked at over 7% in October. After a lower-than-anticipated reading of November's consumer price index, the average rate on a 30-year fixed-rate mortgage fell to 6.31% this week, Freddie Mac indicated in a Thursday report. Over the last five weeks, mortgage rates have declined by more than three quarters of a point — marking the largest drop since 2008.
"Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve's monetary policy reverberated through the economy," Sam Khater, chief economist at Freddie Mac, said in the report. "The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand."